As a trusted independent firm of financial advisors, we have handled numerous Self Invested Personal Pension (SIPP) projects for clients across the North East, Cumbria, Yorkshire and the Borders – and it is rarely a straight-forward process.
As touched upon in our recent introductory blog, a number of factors can have an impact on SIPP; some will be fairly commonplace, and some may only occur a handful of times. This makes seeking tailored and professional advice even more crucial.
To highlight the intricacies, and benefits, involved in SIPPs, we will be publishing a series of advice pieces and hypothetical situations; delving into some of the more unusual scenarios to offer advice to others in a similar scenario, and underline the impact advice from experienced professionals can have on reaching the best outcome.
In our first example we’re looking at the ability to buy and hold directly owned commercial property within SIPPs, a popular investment feature for many years.
Please note - This content is an illustrative example only and is not under any circumstances to be considered as the provision of financial advice.
Commercial Property continues to be a popular investment choice with a range of investors, including business owners.
It is worth noting that not all property classes are an acceptable investment to hold within a regulated pension scheme. Acceptable options include:
- Commercial property including but not limited to, industrial units, offices and shops
- Land including but not limited to, agricultural property
Once established it is possible for the SIPP to borrow money, usually from a high street bank, to provide extra liquidity to assist with the property purchase – remembering a SIPP is restricted to borrowing up to 50% of the net value of the scheme assets at the point the borrowing is taken out.
The SIPP is also able to acquire property from the scheme member and connected parties, albeit an independent valuation needs to be prepared to demonstrate that the purchase is at ‘arm’s length’ and on commercial terms.
There are some attractive tax advantages of property being held through a SIPP. For example; income received into the SIPP, such as rental income, is exempt from income tax, and any gains made on the disposal of the property by the SIPP are free from Capital Gains Tax.
When acquiring property via a SIPP where this is owned already by the scheme member or scheme member’s company, consideration should also be given to Capital Gains Tax/Corporation Tax, as the sale to the SIPP is treated as a disposal for money’s worth and tax charges may apply. Depending on the value of the property, Stamp Duty Land Tax may also apply.
Finally, VAT may also apply to the property and this should also be factored into any purchase by the SIPP; however, the SIPP can apply to be VAT registered to reclaim any of this tax paid.
To find out how this works in practice be sure to revisit our blog, or follow us on LinkedIn, to read our example scenario of Commercial Property purchase within a SIPP.